EU introduces new system of tax dispute resolution

3. 10. 2019
As of 1 July a new system of rules comes into force to ensure quicker and more effective resolution of tax disputes between Member States. It includes especially double taxation issues and interpretation and application of international agreements on elimination of double taxation.

Currently there are 2000 such disputes pending in EU, out of which around 900 are over 2 years old. Double taxation occurs when two or more states claim the right to tax the same income or profit of a company or person. This is caused by mismatch between national rules of different jurisdictions or divergent interpretations of the same provisions in a bilateral tax treaty.

Until now, there has only been a multilateral convention that gives tax authorities the possibility to submit a dispute to arbitration. The tax payer however has had no opportunity to trigger the process himself. Furthermore tax authorities haven’t been required to reach a final agreement.

Member States will now have a legal duty to take conclusive decisions:

  • Taxpayers facing tax disputes that arise from bilateral tax agreements or conventions that provide for the elimination of double taxation can now initiate a mutual agreement procedure whereby the Member States in question must try to resolve the dispute amicably within two years.

  • If no solution has been found at the end of this 2-year period, the taxpayer can request the setting up of an Advisory Commission to deliver an opinion. If Member States fail to do this, the taxpayer can bring an action before its national court and force Member States to act.

  • This Advisory Commission will be comprised of three independent members appointed by the Member States concerned and representatives of the competent authorities in question. It must deliver an opinion within 6 months, which the Member States concerned must carry out unless they agree to another solution within the 6 months following the opinion.

  • If the decision is not implemented, the taxpayer who has accepted the final decision and renounced his right to domestic remedies within 60 days from notification may seek to enforce its implementation before the national courts. Member States are obliged to notify taxpayers and publish the full final decision or an abstract.

The new directive applies to complaints submitted from 1 July 2019 onwards, relating to questions of dispute in matters of income or capital earned in a tax year commencing on or after 1 January 2018. The competent authorities can also agree to apply the directive to any complaint submitted prior to that day or to earlier tax years.